RANCHO SANTIAGO COMMUNITY COLLEGE DISTRICT ANNUAL FINANCIAL REPORT JUNE 30, 2013

Transcription

1 RANCHO SANTIAGO COMMUNITY COLLEGE DISTRICT ANNUAL FINANCIAL REPORT JUNE 30, 2013

2 TABLE OF CONTENTS JUNE 30, 2013 FINANCIAL SECTION Independent Auditors' Report 2 Management's Discussion and Analysis 4 Basic Financial Statements - Primary Government Statement of Net Position 13 Statement of Revenues, Expenses, and Changes in Net Position 14 Statement of Cash Flows 15 Fiduciary Funds Statement of Net Position 17 Statement of Changes in Net Position 18 Discretely Presented Component Units Statement of Financial Position 19 Statement of Activities 20 Statement of Cash Flows 21 Notes to Financial Statements 22 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Other Postemployment Benefits (OPEB) Funding Progress 51 SUPPLEMENTARY INFORMATION District Organization 53 Schedule of Expenditures of Federal Awards 54 Schedule of Expenditures of State Awards 57 Schedule of Workload Measures for State General Apportionment Annual (Actual) Attendance 58 Reconciliation of Education Code Section (50 Percent Law) Calculation 59 Reconciliation of Annual Financial and Budget Report (CCFS-311) With Fund Financial Statements 62 Proposition 30 Education Protection Act (EPA) Expenditure Report 63 Reconciliation of Governmental Funds to the Statement of Net Position 64 Notes to Supplementary Information 65 INDEPENDENT AUDITORS' REPORTS Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards 68 Report on Compliance for Each Major Program and Report on Internal Control Over Compliance Required by OMB Circular A Report on State Compliance 72 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Summary of Auditors' Results 75 Financial Statement Findings and Recommendations 76 Federal Awards Findings and Questioned Costs 77 State Awards Findings and Questioned Costs 79 Summary Schedule of Prior Audit Findings 80

3 FINANCIAL SECTION 1

4 Vavrinek, Trine, Day & Co., LLP Certified Public Accountants VALUE THE DIFFERENCE INDEPENDENT AUDITORS' REPORT Board of Trustees Rancho Santiago Community College District Santa Ana, California Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities and the discretely presented component units of Rancho Santiago Community College District (the District) as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the District's basic financial statements as listed in the Table of Contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the District's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the business-type activities and the discretely presented component units of the District as of June 30, 2013, and the changes in net position and cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America Aspen Street Rancho Cucamonga, CA Tel: Fax: FRESNO LAGUNA HILLS PALO ALTO PLEASANTON RANCHO CUCAMONGA riverside Sacramento

5 Changes in Accounting Principles As discussed in the Notes to the basic financial statements, the accompanying financial statements reflect certain changes required as a result of the implementation of GASB Statement No. 62 for the year ended June 30, These changes require a restatement of the beginning net position of the District as discussed in Note 15. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require the Management's Discussion and Analysis on pages 4 through 12 and the Schedule of Other Postemployment Benefits (OPEB) Funding Progress on page 51 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District's basic financial statements. The supplementary information listed in the Table of Contents, including the Schedule of Expenditures of Federal Awards, as required by U.S. Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplementary information, including the Schedule of Expenditures of Federal Awards, is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 29, 2013, on our consideration of the District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control over financial reporting and compliance. Rancho Cucamonga, California November 29,

6 USING THIS ANNUAL REPORT The purpose of this annual report is to provide readers with information about the activities programs and financial condition of Rancho Santiago Community College District (the District) as of June 30, The report consists of three basic financial statements: the Statement of Net Position, Statement of Revenues, Expenses, and Changes in Net Position, and Statement of Cash Flows and provides information about the District as a whole. This section of the annual financial report presents our discussion and analysis of the District's financial performance during the fiscal year that ended on June 30, Please read it in conjunction with the District's financial statements, which immediately follow this section. Responsibility for the completeness and accuracy of this information rests with the District management. OVERVIEW OF THE FINANCIAL STATEMENTS Rancho Santiago Community College District's financial statements are presented in accordance with Governmental Accounting Standards Board Statements No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments and No. 35, Basic Financial Statements - and Management Discussion and Analysis - for Public College and Universities. These statements allow for the presentation of financial activity and results of operations which focuses on the District as a whole. The entity-wide financial statements present the overall results of operations whereby all of the District's activities are consolidated into one total versus the traditional presentation by fund type. The focus of the Statement of Net Position is designed to be similar to the bottom line results of the District. This statement combines and consolidates current financial resources with capital assets and long-term obligations. The Statement of Revenues, Expenses, and Changes in Net Position focuses on the costs of the District's operational activities with revenues and expenses categorized as operating and nonoperating, and expenses are reported by natural classification. The Statement of Cash Flows provides an analysis of the sources and uses of cash within the operations of the District. The California Community Colleges Chancellor's Office has recommended that all State community colleges follow the Business-Type Activity (BTA) model for financial statement reporting purposes. 4

7 MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2013 FINANCIAL HIGHLIGHTS The Annual Report consists of three basic financial statements that provide information on the District as a whole and will be discussed below: The Statement of Net Position The Statement of Revenues, Expenses, and Changes in Net Position The Statement of Cash Flows THE DISTRICT AS A WHOLE Statement of Net Position The Statement of Net Position presents the assets, liabilities, and net position of the District as of the end of the fiscal year and is prepared using the accrual basis of accounting, which is similar to the accounting method used by most private-sector organizations. The Statement of Net Position presents end-of-year data concerning assets (current and noncurrent), liabilities (current and noncurrent), and net position (assets minus liabilities), presenting the reader a fiscal snapshot of the District. From the data presented, readers of the Statement of Net Position are able to determine the assets available to continue the operations of the District. Readers are also able to determine how much the District owes vendors and employees. Finally, the Statement of Net Position provides a picture of the net position and its availability for expenditure by the District. The difference between total assets and total liabilities (net position) is one indicator of the current financial condition of the District; the change in net position is an indicator of whether the overall financial condition has improved or worsened during the year. Assets and liabilities are generally measured using current values. One notable exception is capital assets, which are stated at historical cost less an allocation for depreciation expense. The net position (formerly called fund balance) is divided into three major categories. The first category, net investment in capital assets, provides the equity amount in property, plant, and equipment owned by the District. The second category is expendable restricted net position; this net position is available for expenditure by the District, but must be spent for purposes as determined by external entities and/or donors that have placed time or purpose restrictions on the use of the assets. The final category is unrestricted net position that is available to the District for any lawful purpose of the District. 5

8 MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2013 The Statement of Net Position as of June 30, 2013 and 2012, is summarized below: Table 1 (Amounts in thousands) 2012 Percentage 2013 (as restated) Change Change ASSETS Current Assets Cash and investments $ 165,120 $ 175,810 $ (10,690) -6.08% Accounts receivable 30,622 35,955 (5,333) % Other current assets 26,338 8,669 17, % Total Current Assets 222, ,434 1, % Capital Assets (net) 394, ,598 16, % Total Assets $ 616,133 $ 598,032 $ 18, % Current Liabilities Accounts payable and accrued liabilities $ 21,062 $ 23,639 $ (2,577) % Current portion of long-term debt 9,269 7,112 2, % Total Current Liabilities 30,331 30,751 (420) -1.37% Long-term Debt 407, ,138 4, % Total Liabilities 437, ,889 3, % NET ASSETS Net investment in capital assets 82,907 92,707 (9,800) % Restricted 40,060 29,848 10, % Unrestricted 55,630 41,588 14, % Total Net Position 178, ,143 14, % Total Liabilities and Net Position $ 616,133 $ 598,032 $ 18, % Fiscal year ended 2013 compared to 2012: Current assets overall increased by approximately $1.6 million. Within this category, cash and investments decreased due to our continued expenditures related to our bond construction program, and accounts receivable decreased specifically due to the reduction of the State apportionment deferrals. The increase in the other current assets related to the deferred charge related to the refunding of bonds during the fiscal year. Net capital assets increased by approximately $16.5 million mainly due to completed construction of the following projects: (1) Santiago Canyon College Athletics and Aquatics Center, (2) Soccer Field and Cul de Sacs at Santa Ana College, (3) Humanities Building at Santiago Canyon College, and (4) Santiago Canyon College New Entrance and Traffic Signal. 6

9 MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2013 Statement of Revenues, Expenses, and Changes in Net Position Changes in total net position are presented on the Statement of Revenues, Expenses, and Changes in Net Position. The purpose of this statement is to present the operating and nonoperating revenues earned whether received or not by the District, the operating and nonoperating expenses incurred whether paid or not by the District, and any other revenues, expenses, gains and/or losses earned or incurred by the District. Thus, this Statement presents the District's results of operations. Generally, operating revenues are earned for providing goods and services to the various customers and constituencies of the District. Operating expenses are those expenses incurred to acquire or produce the goods and services provided in return for the operating revenues and to fulfill the mission of the District. Nonoperating revenues are those received or pledged for which goods and services are not provided; for example, State appropriations while budgeted for operations, are considered nonoperating revenue according to generally accepted accounting principles because they are provided by the legislature to the District without the legislature directly receiving commensurate goods and services for those revenues. Table 2 (Amounts in thousands) Percentage Change Change Operating Revenues Tuition and fees $ 12,801 $ 11,349 $ 1, % Auxiliary sales and charges (247) 0.00% Total Operating Revenues 13,218 12,013 1, % Operating Expenses Salaries and benefits 142, ,001 2, % Supplies and maintenance 21,586 42,624 (21,038) % Financial aid 21,953 23,144 (1,191) -5.15% Depreciation 12,748 11, % Total Operating Expenses 198, ,641 (18,794) -8.64% Loss on Operations (185,629) (205,628) 19, % Nonoperating Revenues State apportionments 73,803 83,912 (10,109) % Property taxes 47,932 37,368 10, % Federal grants 35,015 36,442 (1,427) -3.92% State grants 17,671 17, % State taxes and other revenue 5,197 5,354 (157) -2.93% Net interest expense (11,739) (21,910) 10, % Other nonoperating revenues 11,258 8,663 2, % Total Nonoperating Revenue 179, ,255 11, % Other Revenues State and local capital income 20,946 18,276 2, % Net Change in Net Position $ 14,454 $ (20,097) $ 34, % 7

10 MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2013 Fiscal year ended 2013 compared to 2012: Fees increased 13 percent in 2013 due to the increase in State enrollment fees from $36 to $46 and an increase of 477 total funded Full-Time Equivalent Students served. Supplies and maintenance costs decreased $21 million due primarily to the effect of the bond refunding issuance made by the District in State apportionments decreased by a total of about $10 million and property taxes increased by a like amount due to the shift from State support with additional RDA payments during the current year. In accordance with requirements set forth by the California Community Colleges Chancellor's Office, the District reports operating expenses by object code. Operating expenses by functional classification are as follows: Year ended June 30, 2013: Table 3 (Amounts in thousands) Supplies, Material, and Salaries and Other Expenses Student Benefits and Services Financial Aid Depreciation Total Instructional activities $ 57,885 $ 3,143 $ - $ - $ 61,028 Academic support 11, ,564 Student services 29,618 1, ,734 Plant operations and maintenance 4,980 2, ,408 Instructional support services 24,964 5, ,110 Community services and economic development 2, ,386 Ancillary services and auxiliary operations 10,425 2, ,335 Student aid ,953-21,953 Physical property and related acquisitions 492 6, ,581 Depreciation ,748 12,748 Total $ 142,560 $ 21,586 $ 21,953 $ 12,748 $ 198,847 8

11 MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2013 Year ended June 30, 2012: (Amounts in thousands) Supplies, Material, and Salaries and Other Expenses Student Benefits and Services Financial Aid Depreciation Total Instructional activities $ 57,860 $ 2,868 $ - $ - $ 60,728 Academic support 10, ,213 Student services 29,271 1, ,899 Plant operations and maintenance 4,909 3, ,067 Instructional support services 24,880 7, ,207 Community services and economic development 2, ,007 Ancillary services and auxiliary operations 9,271 4, ,329 Student aid ,144-23,144 Physical property and related acquisitions , ,175 Depreciation ,872 11,872 Total $ 140,001 $ 42,624 $ 23,144 $ 11,872 $ 217,641 Statement of Cash Flows The Statement of Cash Flows provides information about cash receipts and cash payments during the fiscal year. This Statement also helps users assess the District's ability to generate positive cash flows, meet obligations as they come due, and the need for external financing. The Statement of Cash Flows is divided into five parts. The first part reflects operating cash flows and shows the net cash used by operating activities of the District. The second part details cash received for nonoperating, noninvesting, and noncapital financing purposes. The third part shows cash flows from capital and related financing activities and deals with the cash used for the acquisition and construction of capital and related items. The fourth part provides information from investing activities and the amount of interest received. The last section reconciles the net change in cash and cash equivalents to the ending cash and cash equivalents balance reflected on the Statement of Net Position. Statement of Changes in Cash Position Operating activities consist of cash receipts from enrollment fees, grants and contracts, and cash payments for salaries, benefits, supplies, utilities, and other items related to the instructional program. Noncapital financing activities are primarily State apportionment and property taxes. Capital financing activities consist of purchases of capital assets (land, buildings, and equipment) and bond interest payments and receipts from Federal and State grants for capital purposes, as well as property tax revenue for bond repayments. 9

12 MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2013 Cash from investing activities is interest earned on investments through the Orange County Investment Pool and the Local Agency Investment Fund (LAIF). Table 4 (Amounts in thousands) Change Cash Provided by (Used in) Operating activities $ (186,225) $ (196,130) $ 9,905 Noncapital financing activities 194, ,545 8,132 Capital financing activities (19,799) (17,941) (1,858) Investing activities 657 1,126 (469) Net Decrease in Cash (10,690) (26,400) 15,710 Cash, Beginning of Year 175, ,210 (26,400) Cash, End of Year $ 165,120 $ 175,810 $ (10,690) CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets Fiscal year ended 2013 compared to 2012: As of June 30, 2013, the District had $518.6 million in capital assets, less $124.6 million accumulated depreciation for net capital assets of $394.1 million. The District continues to work on the facilities projects that are part of the $337 million bond master plan. The District spent approximately $34.3 million on capital assets in , the majority of which relate to bond proceeds. Depreciation charges totaled $12.7 million in (Amounts in thousands) Table 5 Balance Beginning of Year, as restated Additions Deletions Balance End of Year Land and construction in progress $ 153,324 $ 23,854 $ 17,797 $ 159,381 Buildings and improvements 275,409 14, ,170 Furniture and equipment 61,680 8, ,082 Subtotal 490,413 47,001 18, ,633 Accumulated depreciation 112,815 12, ,580 $ 377,598 $ 34,253 $ 17,798 $ 394,053 10

13 MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2013 Obligations Fiscal year ended 2013 compared to 2012: At June 30, 2013, the District had $416.5 million in outstanding long-term liabilities compared to $410.3 million at June 30, The net increase of $6.2 million includes an increase of $3 million in the Other Postemployment Benefits obligation in accordance with the most recent actuarial study of Retiree Health Liabilities dated July 17, 2012, and an increase of $14.8 million related to the issuance of two General Obligation Refunding Bonds during the fiscal year. Table 6 (Amounts in thousands) Balance Beginning of Year Additions Deletions General obligation bonds $ 354,360 $ 99,740 97,286 Balance End of Year $ $ 356,814 Claims payable Compensated absences 4, ,915 Load banking 3, ,070 Net OPEB obligation 47,261 8,894 5,879 50,276 Total Long-Term Obligations $ 410,251 $ 109,391 $ 103,167 $ 416,475 Amount due within one year $ 9,269 BUDGETARY HIGHLIGHTS At the time the budget was developed, the following assumptions were made: The proposed State Cost of Living Allowance (COLA) increase was budgeted at 1.57 percent. The District also budgeted restoration/access/growth funding at the State estimated 1.63 percent plus an additional 1 percent growth opportunity for a total estimated amount of Full-Time Equivalent Students served at 28,926. The District budgeted $17.9 million for estimated Education Protection Account (EPA) funding. The District's budget is balanced by using a portion of the unrestricted ending balance stabilization funds. The District continued a second year in transition to a new budget allocation model based on SB 361 moving the District to a revenue allocation system. This model will continue in transition until ongoing revenues and expenses are balanced without the need of stabilization funding. 11

14 MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2013 ECONOMIC FACTORS The financial position of the Rancho Santiago Community College District is closely tied to that of the State of California. The District receives over 70 percent of its combined general fund revenues through State apportionments and local property taxes. These two sources along with allocations from the EPA, RDA allocations, and student paid enrollment fees essentially make up the District's general apportionment, the main funding support for California community colleges. There is a concern for community colleges in that the shift of State support to the EPA funding, which is keeping budgets afloat temporarily, partially expire in 2016 and fully expire in 2018, along with the dissolution of redevelopment agencies and the related pass through funding creates uncertainty as to how these revenues will be made up in the future. Management continues to closely monitor the State budget information and operating costs of the District and will maintain a close watch over resources to ensure financial stability and retain reserve levels required by Board Policy and the State Chancellor's Office. CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, students, and investors and creditors with a general overview of the District's finances and to show the District's accountability for the money it receives. If you have questions about this report or need any additional financial information, contact Rancho Santiago Community College District, attention Vice Chancellor, Business Operations and Fiscal Services, 2323 North Broadway, Santa Ana, CA 92706, (714)

15 STATEMENT OF NET POSITION - PRIMARY GOVERNMENT JUNE 30, 2013 ASSETS Current Assets Cash and cash equivalents - unrestricted $ 4,336,877 Cash and cash equivalents - restricted 1,747,109 Investments - unrestricted 71,130,092 Investments - restricted 87,906,390 Accounts receivable 30,477,462 Student loans receivable 144,042 Due from fiduciary funds 639,104 Prepaid expenses 119,947 Inventories 1,131,719 Deferred cost of issuance 4,428,690 Deferred charge on refunding 20,017,998 Total Current Assets 222,079,430 Noncurrent Assets Nondepreciable capital assets 159,380,885 Depreciable capital assets, net of depreciation 234,672,279 Total Noncurrent Assets 394,053,164 TOTAL ASSETS 616,132,594 LIABILITIES Current Liabilities Accounts payable 10,648,209 Accrued interest payable 5,116,432 Due to fiduciary funds 557,990 Deferred revenue 4,738,335 Compensated absences payable - current portion 754,380 Bonds payable - current portion 8,515,000 Total Current Liabilities 30,330,346 Noncurrent Liabilities Claims liability 400,000 Compensated absences payable - noncurrent portion 4,160,398 Bonds payable - noncurrent portion 348,298,576 Other long-term liabilities - noncurrent portion 54,346,238 Total Noncurrent Liabilities 407,205,212 TOTAL LIABILITIES 437,535,558 NET POSITION Net investment in capital assets 82,907,287 Restricted for: Debt service 10,627,347 Capital projects 26,672,852 Educational programs 2,760,010 Unrestricted 55,629,540 TOTAL NET POSITION $ 178,597,036 The accompanying notes are an integral part of these financial statements. 13

16 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION - PRIMARY GOVERNMENT FOR THE YEAR ENDED JUNE 30, 2013 OPERATING REVENUES Student Tuition and Fees $ 23,708,303 Less: Scholarship discount and allowance (10,906,638) Net tuition and fees 12,801,665 Auxiliary Enterprise Sales and Charges Other Operating Revenues 416,711 TOTAL OPERATING REVENUES 13,218,376 OPERATING EXPENSES Salaries 102,369,077 Employee benefits 40,190,663 Supplies, materials, and other operating expenses and services 19,491,320 Student financial aid 21,953,484 Equipment, maintenance, and repairs 2,094,827 Depreciation 12,748,021 TOTAL OPERATING EXPENSES 198,847,392 OPERATING LOSS (185,629,016) NONOPERATING REVENUES (EXPENSES) State apportionments, noncapital 73,802,994 Local property taxes, levied for general purposes 47,932,517 Federal grants 35,015,245 State grants 17,670,634 State taxes and other revenues 5,197,530 Investment income 657,747 Interest expense on capital related debt (12,437,237) Investment income on capital asset-related debt, net 39,864 Transfer out to fiduciary fund (60,800) Loss on disposal of capital assets (1,168) Other nonoperating revenue 11,319,918 TOTAL NONOPERATING REVENUES (EXPENSES) 179,137,244 LOSS BEFORE OTHER REVENUES AND EXPENSES (6,491,772) OTHER REVENUES State revenues, capital 1,956,841 Local revenues, capital 18,988,976 TOTAL OTHER REVENUES 20,945,817 CHANGE IN NET POSITION 14,454,045 NET POSITION, BEGINNING OF YEAR AS RESTATED 164,142,991 NET POSITION, END OF YEAR $ 178,597,036 The accompanying notes are an integral part of these financial statements. 14

17 STATEMENT OF CASH FLOWS - PRIMARY GOVERNMENT FOR THE YEAR ENDED JUNE 30, 2013 CASH FLOWS FROM OPERATING ACTIVITIES Tuition and fees $ 12,945,450 Auxiliary sales 416,711 Payments to or on behalf of employees (138,459,584) Payments to vendors for supplies and services (39,173,943) Payments to students for scholarships and grants (21,953,484) Net Cash Flows From Operating Activities (186,224,850) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State apportionments 73,802,994 Property taxes 47,932,517 Grant and contracts 51,409,823 State taxes and other revenue 11,058,952 Other nonoperating 10,472,867 Net Cash Flows From Noncapital Financing Activities 194,677,153 CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES Purchase of capital assets (30,652,397) State revenue, capital projects 1,956,841 Local revenue, capital projects 18,988,976 Proceeds from capital debt 99,739,680 Principal paid on capital debt (97,285,980) Interest paid on capital debt (12,586,182) Interest received on capital asset-related debt 39,864 Net Cash Flows From Capital Financing Activities (19,799,198) CASH FLOWS FROM INVESTING ACTIVITIES Interest received from investments 657,747 Net Cash Flows From Investing Activities 657,747 NET CHANGE IN CASH AND CASH EQUIVALENTS (10,689,148) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 175,809,616 CASH AND CASH EQUIVALENTS, END OF YEAR $ 165,120,468 The accompanying notes are an integral part of these financial statements. 15

18 STATEMENT OF CASH FLOWS - PRIMARY GOVERNMENT, Continued FOR THE YEAR ENDED JUNE 30, 2013 RECONCILIATION OF NET OPERATING LOSS TO NET CASH FLOWS FROM OPERATING ACTIVITIES Operating Loss $ (185,629,016) Adjustments to Reconcile Operating Loss to Net Cash Flows From Operating Activities: Depreciation expense 12,748,021 Changes in Assets and Liabilities: Receivables 66,402 Inventories 46,428 Prepaid expenses and deferred charges (17,619,767) Accounts payable and accrued liabilities 407,218 Deferred revenue (14,457) OPEB obligation 3,015,196 Compensated absences and load banking 755,125 Total Adjustments (595,834) Net Cash Flows From Operating Activities $ (186,224,850) CASH AND CASH EQUIVALENTS CONSIST OF THE FOLLOWING: Cash in banks $ 6,083,986 Cash in county treasury 158,886,305 Cash in Local Agency Investment Fund (LAIF) 150,177 Total Cash and Cash Equivalents $ 165,120,468 NONCASH TRANSACTIONS On behalf payments for benefits $ 2,904,381 The accompanying notes are an integral part of these financial statements. 16

19 STATEMENT OF FIDUCIARY NET POSITION JUNE 30, 2013 Agency Trust Funds ASSETS Cash and cash equivalents $ 1,711,007 $ 1,254,594 Investments 5 - Accounts receivable 53,446 - Due from primary government 557,990 - Total Assets 2,322,448 $ 1,254,594 LIABILITIES Accounts payable 88,647 $ 4,370 Due to primary government 639,104 - Due to student groups - 1,250,224 Total Liabilities 727,751 $ 1,254,594 NET POSITION Reserved 28,445 Unreserved 1,566,252 Total Net Position $ 1,594,697 The accompanying notes are an integral part of these financial statements. 17

20 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE YEAR ENDED JUNE 30, 2013 Trust ADDITIONS Local revenues $ 2,247,892 DEDUCTIONS Classified salaries 579,423 Employee benefits 167,235 Books and supplies 26,403 Services and operating expenditures 1,261,138 Capital outlay 110,816 Total Deductions 2,145,015 OTHER FINANCING SOURCES Transfer in from governmental funds 60,800 Change in Net Position 163,677 Net Position - Beginning 1,431,020 Net Position - Ending $ 1,594,697 The accompanying notes are an integral part of these financial statements. 18

21 DISCRETELY PRESENTED COMPONENT UNITS STATEMENT OF FINANCIAL POSITION JUNE 30, 2013 ASSETS CURRENT ASSETS Cash and cash equivalents - unrestricted $ 632,841 Cash and cash equivalents - restricted 1,659,588 Investments, at fair value - unrestricted 170,855 Accounts receivable 33,103 Prepaid expenses 1,000 Total Current Assets 2,497,387 NONCURRENT ASSETS Investments, at fair value - unrestricted 1,894,359 Investments, at fair value - restricted 4,306,770 Equipment, net 21,011 Total Noncurrent Assets 6,222,140 TOTAL ASSETS $ 8,719,527 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable $ 52,443 Deferred revenue 5,932 TOTAL LIABILITIES 58,375 NET ASSETS Unrestricted 2,513,031 Temporarily restricted 6,023,841 Permanently restricted 124,280 Total Net Assets 8,661,152 Total Liabilities and Net Assets $ 8,719,527 The accompanying notes are an integral part of these financial statements. 19

22 DISCRETELY PRESENTED COMPONENT UNITS STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2013 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUES Contributions $ 2,555,624 $ 1,878,972 $ - $ 4,434,596 Fundraising 115, ,660 Donated facilities 18, ,366 Donated salaries and benefits 477, ,148 Special events 20,238 18,950-39,188 Federal revenues - 83,957-83,957 Administrative fee 18, ,615 Miscellaneous revenue 3,218 4,713-7,931 Assets released from restrictions 1,054,705 (1,054,705) - - Total Revenues 4,263, ,887-5,195,461 EXPENSES Operating expenses 545, ,770 Program expenses 3,880, ,880,409 Fundraising expenses 203, ,482 Total Expenses 4,629, ,629,661 OTHER INCOME (EXPENSE) Realized gain on sale of investments 4,480 40,769-45,249 Unrealized gain (loss) (21,894) 21,031 - (863) Interest and dividends 45, , ,689 Transfers (991,026) 1,002,213 (11,187) - Total Other Income (Expense) (962,490) 1,188,752 (11,187) 215,075 CHANGE IN NET ASSETS (1,328,577) 2,120,639 (11,187) 780,875 NET ASSETS, BEGINNING OF YEAR 3,841,608 3,903, ,467 7,880,277 NET ASSETS, END OF YEAR $ 2,513,031 $ 6,023,841 $ 124,280 $ 8,661,152 The accompanying notes are an integral part of these financial statements. 20

23 DISCRETELY PRESENTED COMPONENT UNITS STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2013 CASH FLOWS FROM OPERATING ACTIVITIES Change in Net Assets $ 780,875 Adjustments to Reconcile Change in Net Assets to Net Cash Used by Operating Activities Unrealized loss 863 Depreciation 5,989 Contributions restricted for long-term purposes (1,878,972) Changes in Assets and Liabilities Decrease in accounts receivable and prepaid accounts 5,983 Increase in accounts payable 29,582 Decrease in due to Rancho Santiago Community College District (33,653) Decrease in deferred revenue (3,000) Net Cash Flows From Operating Activities (1,092,333) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments 3,049,944 Purchase of investments (2,858,557) Increase in restricted cash and cash equivalents (909,428) Net Cash Flows From Investing Activities (718,041) CASH FLOWS FROM FINANCING ACTIVITIES Collections of contributions restricted for long-term purposes 1,878,972 NET CHANGE IN UNRESTRICTED CASH AND CASH EQUIVALENTS 68,598 UNRESTRICTED CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 564,243 UNRESTRICTED CASH AND CASH EQUIVALENTS, END OF YEAR $ 632,841 NONCASH TRANSACTIONS Donated facilities $ 18,366 Donated salaries and benefits $ 477,148 The accompanying notes are an integral part of these financial statements. 21

24 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 NOTE 1 - ORGANIZATION Rancho Santiago Community College District (the District) was established in 1971 as a political subdivision of the State of California and is a comprehensive, public, two-year institution offering educational services to residents of the surrounding area. The District operates under a locally elected seven-member Board of Trustees form of government, which establishes the policies and procedures by which the District operates. The Board must approve the annual budgets for the General Fund, special revenue funds, and capital project funds, but these budgets are managed at the department level. Currently, the District operates two colleges located within Orange County. While the District is a political subdivision of the State of California, it is legally separate and is independent of other State and local governments, and it is not a component unit of the State in accordance with the provisions of Governmental Accounting Standards Board (GASB) Statement No. 61. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Reporting Entity The District has adopted GASB Statement No. 61, Determining Whether Certain Organizations are Component Units. This statement amends GASB Statement No. 14, The Financial Reporting Entity, to provide additional guidance to determine whether certain organizations, for which the District is not financially accountable, should be reported as component units based on the nature and significance of their relationship with the District. The three components used to determine the presentation are: providing a "direct benefit", the "environment and ability to access/influence reporting", and the "significance" criterion. As defined by accounting principles generally accepted in the United States of America and established by the Governmental Accounting Standards Board, the financial reporting entity consists of the primary government, the District, and the following component units: Rancho Santiago Community College District Foundation Rancho Santiago Community College District Foundation is a nonprofit organization organized in 1998, which operates as an auxiliary organization of Rancho Santiago Community College District. The primary functions of the foundation are community and institutional development and administration of the Endowment Challenge Grant. Santa Ana College Foundation Santa Ana College Foundation is a nonprofit organization organized in 1968 to assist in the achievement and maintenance of a superior program of public education and community participation with Rancho Santiago Community College District by receiving contributions from the public, by raising funds and making contributions to educational and community programs of Santa Ana College, and by developing, conducting, and financing programs and projects designed to benefit the students enrolled in the educational and community programs of the District. 22

25 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Santiago Canyon College Foundation Santiago Canyon College Foundation is a nonprofit organization organized in July 1998, which operates as an auxiliary organization of Rancho Santiago Community College District. The primary functions of the foundation are to enhance and augment the mission of Santiago Canyon College. Its purpose is to seek, receive, and secure donations and gifts to assist the college in meeting its short and long-range goals and objectives. The Foundations are legally separate, tax-exempt component units of the District. The Foundations act primarily as a fundraising organization to provide grants and scholarships to students and support to employees, programs, and departments of the District. The Board members of the Foundations consist of community members, alumni, and other supporters of the Foundations. Although the District does not control the timing or amount of receipts from the Foundations, the majority of resources or income thereon that the Foundations hold and invest is restricted to the activities of the District by the donors. Because these restricted resources held by the Foundations can only be used by, or for the benefit of, the District, the Foundations are considered component units of the District with the inclusion of the statements as discretely presented component units. The Foundations are reported in separate financial statements because of the differences in their reporting models as further described below. The Foundations are not-for-profit organizations under Internal Revenue Code (IRC) Section 501(c)(3) that report their financial results in accordance with Financial Accounting Standards Codifications. As such, certain revenue recognition criteria and presentation features are different from GASB revenue recognition criteria and presentation features. No modifications have been made to the Foundations' financial information in the District's financial reporting entity for these differences; however, significant note disclosures to the Foundations' financial statements have been incorporated into the District's notes to the financial statements. Complete financial statements for the Foundations can be obtained from their respective offices. Measurement Focus, Basis of Accounting, and Financial Statement Presentation For financial reporting purposes, the District is considered a special-purpose government engaged only in business-type activities as defined by GASB Statements No. 34 and No. 35 as amended by GASB Statements No. 37 and No. 38. This presentation provides a comprehensive entity-wide perspective of the District's assets, liabilities, activities, and cash flows and replaces the fund group perspective previously required. Accordingly, the District's financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting. The significant accounting policies followed by the District in preparing these financial statements are in accordance with accounting principles generally accepted in the United States of America as prescribed by GASB. Additionally, the District's policies comply with the California Community Colleges Chancellor's Office Budget and Accounting Manual. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All material intra-agency and intra-fund transactions have been eliminated. 23

26 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Revenues resulting from exchange transactions, in which each party gives and receives essentially equal value, are classified as operating revenues. These transactions are recorded on the accrual basis when the exchange takes place. Available means that the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current fiscal year. For the District, operating revenues consist primarily of student fees. Nonexchange transactions, in which the District receives value without directly giving equal value in return, include State apportionments, property taxes, certain Federal and State grants, entitlements, and donations. Property tax revenue is recognized in the fiscal year received. State apportionment revenue is earned based upon criteria set forth from the Community Colleges Chancellor's Office and includes reporting of full-time equivalent students (FTES) attendance. The corresponding apportionment revenue is recognized in the period the FTES are generated. Revenue from Federal and State grants and entitlements are recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements may include time and/or purpose requirements. Operating expenses are costs incurred to provide instructional services including support costs, auxiliary services, and depreciation of capital assets. All other expenses not meeting this definition are reported as nonoperating. Expenses are recorded on the accrual basis as they are incurred, when goods are received, or services are rendered. The District reports are based on all applicable GASB pronouncements, as well as applicable Financial Accounting Standards Board (FASB) pronouncements issued on or before November 30, 1989, unless those pronouncements conflict or contradict GASB pronouncements. The District has not elected to apply FASB pronouncements after that date. The financial statements are presented in accordance with the reporting model as prescribed in GASB Statement No. 34, Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments, and GASB Statement No. 35, Basic Financial Statements and Management's Discussion and Analysis for Public Colleges and Universities, as amended by GASB Statements No. 37 and No. 38. The business-type activities model followed by the District requires the following components of the District's financial statements: Management's Discussion and Analysis Basic Financial Statements for the District as a whole including: o Statements of Net Position - Primary Government o Statements of Revenues, Expenses, and Changes in Net Position - Primary Government o Statements of Cash Flows - Primary Government o Financial Statements for the Fiduciary Funds including: o Statements of Fiduciary Net Position o Statements of Changes in Fiduciary Net Position Notes to the Financial Statements 24

27 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Cash and Cash Equivalents The District's cash and cash equivalents are considered to be unrestricted cash on hand, demand deposits, and short-term unrestricted investments with original maturities of three months or less from the date of acquisition. Cash equivalents also include unrestricted cash with county treasury balances for purposes of the Statement of Cash Flows. Restricted cash and cash equivalents represent balances restricted by external sources such as grants and contracts or specifically restricted for the repayment of capital debt. Investments Investments held at June 30, 2013, with original maturities greater than one year are stated at fair value. Fair value is estimated based on quoted market prices at year-end. All investments not required to be reported at fair value are stated at cost or amortized cost. Fair values of investments in County and State investment pools are determined by the program sponsor. Restricted Assets Restricted assets arise when restrictions on their use change the normal understanding of the availability of the asset. Such constraints are either imposed by creditors, contributors, grantors, or laws of other governments or imposed by enabling legislation. Restricted assets represent investments required by debt covenants to be set aside by the District for the purpose of satisfying certain requirements of the bonded debt issuance. Accounts Receivable Accounts receivable include amounts due from the Federal, State and/or local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the District's grants and contracts. Accounts receivable also consist of tuition and fee charges to students and auxiliary enterprise services provided to students, faculty, and staff, the majority of each residing in the State of California. All material receivables are considered fully collectible. Prepaid Expenses Prepaid expenses represent payments made to vendors and others for services that will benefit periods beyond June 30, Inventories Inventories consist of bookstore merchandise and supplies held for resale to the students and faculty of the colleges. Inventories are stated at the lower of cost or market on an average basis. The cost is recorded as an expense as the inventory is consumed. 25

28 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Capital Assets and Depreciation Capital assets are long-lived assets of the District as a whole and include land, construction in progress, buildings, leasehold improvements, and equipment. The District maintains an initial unit cost capitalization threshold of $1,000 and an estimated useful life greater than one year. Assets are recorded at historical cost, or estimated historical cost, when purchased or constructed. The District does not possess any infrastructure. Donated capital assets are recorded at estimated fair market value at the date of donation. Improvements to buildings and land that significantly increase the value or extend the useful life of the asset are capitalized; the costs of routine maintenance and repairs that do not add to the value of the asset or materially extend an asset's life are charged as an operating expense in the year in which the expense was incurred. Major outlays for capital improvements are capitalized as construction in progress as the projects are constructed. Depreciation of capital assets is computed and recorded utilizing the straight-line method. Estimated useful lives of the various classes of depreciable capital assets are as follows: buildings, 50 years; improvements, 10 to 15 years; equipment, 3 to 8 years; vehicles, 3 years. Accrued Liabilities and Long-Term Obligations All payables, accrued liabilities, and long-term obligations are reported in the entity-wide financial statements. Deferred Issuance Costs, Premiums, and Discounts Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight-line method. Deferred Amount on Refunding Deferred amount on refunding is amortized using the straight-line method over the remaining life of the new debt. Compensated Absences Accumulated unpaid employee vacation benefits are accrued as a liability as the benefits are earned. The entire compensated absence liability is reported on the entity-wide financial statements. The amounts have been recorded in the fund from which the employees, who have accumulated the leave, are paid. The District also participates in "load-banking" with eligible academic employees whereby the employee may teach extra courses in one period in exchange for time off in another period. Sick leave is accumulated without limit for each employee based upon negotiated contracts. Leave with pay is provided when employees are absent for health reasons; however, the employees do not gain a vested right to accumulated sick leave. Employees are never paid for any sick leave balance at termination of employment or any other time. Therefore, the value of accumulated sick leave is not recognized as a liability in the District's financial statements. However, retirement credit for unused sick leave is applicable to all classified school members who retire after January 1, At retirement, each member will receive.004 year of service credit for each day of unused sick leave. Retirement credit for unused sick leave is applicable to all academic employees and is determined by dividing the number of unused sick days by the number of base service days required to complete the last school year, if employed full time. 26